Methods of reducing the financial risk of physicians under capitation

In today's rapidly changing medical marketplace, managed care plans are not the only entities assuming risk for the care of enrollees through capitation. Increasingly, managed care plans are transferring this risk to their primary care and specialty physicians by paying them on a fully or partially capitated basis. Although capitation provides a strong incentive for physicians to provide cost-effective care, there are concerns that capitation may place some physicians at considerable financial risk. Our purpose is to familiarize physicians with issues they will want to consider when they evaluate capitation options and methods that are available to reduce their financial risk. Specifically, we analyze 3 issues: the range of services that are capitated, who accepts the risk, and size of patient panel. We conclude with a discussion of 3 methods for reducing or limiting risk--reinsurance, "carve outs," and risk adjustment.